For Internet IPOs, the Levitation Act Is Over
All three Internet-related initial public stock offerings priced Monday night ended their first day of trading Tuesday under water--the latest sign that the Net IPO craze has taken a dramatic turn back to Earth.
Blue-chip brokerage Goldman, Sachs & Co. took Net florist 1-800-Flowers.com public at $21, but even Goldman’s powerful name couldn’t keep the stock from diving to close at $18.19 on Nasdaq.
Quotesmith.com, which supplies quotes on insurance policies, and BigStar Entertainment, which sells videos over the Net, also both ended below their IPO prices--a black eye for the stocks, their underwriters and the investors, all of whom have come to expect big first-day jumps in new stocks.
“I don’t know that we’ve ever seen everyone down” on their first day, said Kathy Smith, a money manager at the Renaissance IPO Plus Aftermarket fund in Greenwich, Conn.
Analysts in part blamed the stock market’s broad decline on Tuesday, which saw the Nasdaq composite index dive 1.4%.
But the IPOs’ performance marks the worsening of a trend that began in July, with many new Internet stocks in particular finding little market support soon after their public offerings.
One of the most anticipated IPOs of last month, Net music play MP3.com, went public at $28 a share on July 20 and quickly soared to $105. But by Tuesday it was down to $33.25.
July’s batch of 65 IPOs, the most since November 1997, climbed an average of 56% on their first day of trading, according to researcher Securities Data.
But since those initial bumps--when average investors got their first crack at the stocks--the shares have slid a collective 15%, Securities Data said.
The about-face is all the more dramatic since it comes after months of record-smashing debuts.
So far this year, 52 IPOs have doubled on their first day, more than the total for the previous nine years combined.
But with so many tumbling since their debuts, investors are becoming less eager to snap up new offerings out of the gate, analysts say.
“They are being much wiser and can recognize when the wool is being pulled over their eyes,” said David Menlow of IPO Frontline in Millburn, N.J.
Analysts blame several factors for Net IPOs’ fading appeal, including higher interest rates, a glut of IPOs and recent reports of slower-than-expected growth in online stock trading and advertising.
It doesn’t help that the flagship Net stocks are crumbling. Online auctioneer EBay, for example, fell $6.88 to $84.38 on Tuesday, down 64% from its April 27 peak of $234. Yahoo has lost almost a third of its worth in the past month alone.
The troubles suggest that many of the more than 80 Net issues in the IPO pipeline will have their expected initial prices reduced--and that some will be pulled from the market altogether.
“You should expect to see many other IPOs either stalled out,” Smith said, “or their pricing terms being changed” to a greater discount.
Yet unless the market for new Net stocks has many more disastrous days like Tuesday, analysts said, most IPOs in the pipeline still will hobble into the market. The companies’ need for capital is too great to postpone, experts say.
Most companies that have filed to go public, for instance Garden.com and Mortgage.com, will take what they can get while they can still get it.
“The highest-quality companies will look at this correction and in some cases decide to wait out the volatility,” said venture capitalist James Breyer of Palo Alto’s Accel Partners, which has taken five companies public this year.
But “at some of the second- and third-tier companies, there may be no choice but to try to raise the capital at whatever level they can,” he added.
August is shaping up to be an even bigger IPO month than July. “Two-thirds of the August deals will probably be completed,” said Richard Peterson of Securities Data.
The shakeout in the Net IPO market has long been expected by those closest to the action. And even some who have gotten rich off the boom are relieved that investors’ exuberance is fading.
“A lot of companies went public that were not ready for it and never will be ready for it,” said venture capitalist Allen Morgan of the Mayfield fund, which invested early in software firm Tibco and other recent deals.
Morgan said the Net stock bull run has been prolonged because “inexperienced people are willing to pay, because of a combination of ignorance and mania, more than the institutions to whom these stocks are initially sold.”
For a healthy market, he added, “air coming out of the balloon is a good thing.”
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Harder Times for Net Stocks
New issues of Internet-related stocks have gotten a much chillier reception from investors in recent weeks. Many new issues, though surging initially, have found little support from investors in the days following their public offerings. A look at four Net-related new issues that have come to market since mid-July (prices are daily closes except as noted):
Tibco Software
(Business: computer networking solutions)
July 16, intraday peak: $41.38
July 13 IPO price: $15.00
Tuesday: $23.88, down $1.88
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MP3.com
(Business: music distribution)
July 20 IPO price: $28.00
July 21 intraday peak: $105.00
Tuesday: $33.25, down $6.38
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Packeteer
(Business: network management solutions)
July 27 IPO price: $15.00
July 29 intraday peak: $32.75
Tuesday: $23.25, down $3.63
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Quokka Sports
(Business: sports programming)
July 27 IPO price: $12.00
July 28 intraday peak: $15.88
Tuesday: $8.06, down $1.19
Sources: Times research, Bloomberg News
Recent IPOs: A Mixed Bag
Some of the initial public stock offerings that have hit the market since mid-June still are up sharply, but many have already sunk below their offering prices. A sampling:
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IPO IPO Tuesday Tuesday Change vs. Stock (ticker symbol) price date close change IPO price Ariba (ARBA) $23.00 6/23 $79.50 -$4.50 +245.6% Gadzoox Networks (ZOOX) 21.00 7/20 63.88 -5.13 +204.2 InsWeb (INSW) 17.00 7/23 19.88 -5.56 +16.9 NetIQ (NTIQ) 13.00 7/30 15.06 -1.06 +15.8 Be Inc. (BEOS) 6.00 7/20 6.03 -0.81 +0.5 Splitrock Services (SPLT) 10.00 Tues. 9.00 -1.00 -10.0 Quotesmith.com (QUOT) 11.00 Tues. 9.69 -1.31 -12.0 Talk City (TCTY) 12.00 7/20 10.44 -0.63 -13.0 1-800-Flowers (FLWS) 21.00 Tues. 18.19 -2.81 -13.4 BigStar Enter. (BGST) 10.00 Tues. 8.16 -1.84 -18.4 JFax.com (JFAX) 9.50 7/23 7.00 -1.13 -27.8
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Source: Times research, Bloomberg News
